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FX Indices Review for 15/04/12

Monthly: Trend ranging upwards. The monthly candle is currently printing a bearish ‘inside’ candle. The monthly 200 EMA is above current price, at around the 84 level, and might help to keep a lid on this!

Weekly: Trend up overall. The weekly support trend line is still supporting price. The weekly candle closed as a bearish candle though. The current chart also looks to have formed a bearish ‘double top’. You can see from the weekly chart just how choppy the last 6 weeks now have been. I noted during the week that there was also a bearish ‘Dark Cloud Cover’ pattern forming. The bearish close this week has now confirmed this pattern.

Daily: Trend up. Price rallied for all of February but chopped sideways and up for all of March. Price has chopped downwards now for much of the last 2 weeks. A daily support trend line has been in place for all of March and has now been broken.

Daily Ichimoku Cloud chart: Price is still trading above the daily Cloud but is below the Tenkan-sen line and the Kijun-sen lines. That isn’t looking too healthy. Price is also getting down close to the Cloud.

4hr: Trend choppy. Price chopped downwards for most of the week. Price rallied back above the 82.59 level briefly at the start of the week but, then, fell back down through this and traded below this key level for the rest of the week. The 82.59 level represents the 61.8% fib retrace level from the last major swing high back in mid 2010 and is still proving to be very significant.

4hr Ichimoku Cloud chart: Price has chopped below the 4hr Cloud for much of the week. This is divergent from the daily chart and suggests further choppy action.

EURX

Monthly: Trend down overall but 6 of the last 8 months were bullish. The current print of the monthly candle is a still a bullish engulfing candle.

Weekly: Trend up. Price had earlier failed to move above the monthly 200 EMA. This had been major resistance so it was no surprise that price had paused under this level. Price action had been quite parabolic for ‘risk on’ until recently and subsequently pulled back to the mean of the support trend line; something that is not out of order as part of any continued longer term bullish price action. This pullback has actually played out in text-book fashion! Price bounced up and off the major support trend line last week and continued to rally this week. Thus, the ‘retracement to the mean’ period might have come to an end. The weekly candle closed as a bullish candle. The current weekly chart print seems to have evolved as a ‘bull flag’ pattern. Price has now broken up and out from this flag pattern suggesting that perhaps the retracement period might be over and that the bullish movement might continue. Price is currently sitting above this breakout level but under the 108.5 S/R level. The significance of this 108.5 level can be seen if you cast your eyes across the weekly chart.

Daily: Trend ranging/downwards. Price seems to have been consolidating under the monthly 200 EMA for February and March, and now into April, in a descending flag pattern. These are bullish patterns and give this index a ‘bull flag’ appearance. Price has now broken up and out of this flag pattern though but is sitting under another S/R level in the 108.5 level.

Daily Ichimoku Cloud chart: Price broke out and up from the Cloud on Thursday. Price pulled back a bit on Friday though and is now back to sitting in the upper edge of the Cloud.

4 hr: Trend ranging / up. Price rallied to start the week but then stalled at the 108.5 level towards the end of the week. The chart is looking a bit ‘Bull Flag’ like.

4hr Ichimoku Cloud chart: Price traded above the Cloud all week. This is divergent from the daily chart and suggests further choppy action.

Thoughts:

Choppy markets + Ichimoku: The Ichimoku charts are back to being divergent and this suggests some further choppiness ahead. I do suspect this extended period of choppiness is connected to the current market top action that is being seen across many global stock markets. Stocks and currencies seem to be at a major junction and are experiencing choppy action ahead of the next major new momentum move. To me, this feels like the thunder building before a major storm. I just don’t know whether the storm will be ‘risk on’ or ‘risk off’. I mentioned mid week that the saying is that ‘the best trends come out of choppy markets’. If that is the case then I expect some fantastic trends when they do re-emerge. I have no idea what that directional move will be but, when it appears, I will trade it.

Whilst it might sound like an oxymoron, the consistent pattern with Ichimoku divergence continues. That is; choppy 4hr chart trading with better trend trades found off 30 min charts during the US session. I would expect this pattern to continue until such time as the Ichimoku charts align again.

The EURX as ‘risk’ barometer: The EURX has been a proxy measure for the mood for ‘risk appetite’ over recent months. The EURX has now pulled back down and tested the support of the major monthly trend line. Price has now bounced off this major support level and rallied for the last two weeks. This is no guarantee that this trend will continue though. The next major hurdle for the EURX is the 108.5 level. However, a break and close above this 108.5 level would suggest that there might be some follow through with this bullish reversal and a swing back towards ‘risk on’. This will be a key level to watch in the coming week. I don’t make predictions as I’m a trend follower BUT if the EURX can break up above the 108.5 level I think this will spark a significant ‘risk on’ movement. I don’t see valid fundamental reasons for such a move but then, as the saying goes, ‘trade what you see and not what you think’.

Divergence: I am still bothered by the divergence between the currency (FX) markets and the broader stock markets. These generally trade in tandem, more often than not. I do suspect that they will converge again soon though and I’ll be keen to see which path they follow.

Note: As always, Fundamentals, by way of Euro zone dramas and news announcements, continue to be triggers for price movement on the indices. These events can always have the potential to undermine all Technical analysis.